Co-operative spirit runs dry

Australian Financial Review

26 May 2005

We often hear calls for state and federal governments to adopt a co-operative, rather than confrontational, approach to major national problems. And there can be few areas of policy where such calls make more sense than that of water policy, particularly in relation to the Murray-Darling Basin.

The problems of the Murray-Darling Basin are severe and well-known: irrigation-related and dryland salinity, declining stocks of native fish, widespread loss of wetlands and the associated flora and fauna and, above all, demands for water that exceed the capacity of the system to meet them.

The problems are severe, but they are not insuperable. Since the late 1980s, a combination of measures, including extensive engineering works, a cap on extractions and improved on-farm management has achieved at least a temporary halt in the decades-long trend towards rising salinity levels in the river system. Relatively modest increases in environmental flows of water could yield large benefits in vulnerable ecosystems. The allocation of well-defined tradeable water rights with a clear allocation of risk could yield significant improvements in both economic and environmental outcomes.

By early 2004, it seemed that we had finally managed to achieve a coherent and co-operative approach to the management of water issues, both within particular jurisdictions and, as in the case of the Murray-Darling Basin, involving multiple governments and levels of government. The National Water Initiative, first proposed in 2003, was agreed in 2004.

The Initiative includes agreements in principle on how to deal with such crucial issues as the allocation of risk, full-cost pricing, and environmental sustainability. On the one hand, it required that overallocated water systems should be returned to sustainable levels of use in order to meet environmental outcomes, with substantial progress by 2010. On the other hand, the creation of well-defined perpetual water entitlements, in place of more limited existing rights and licenses, promised irrigators and other water users a degree of certainty and flexibility that had been missing in the past.

Unfortunately an outbreak of old-fashioned federal-state rivalry almost immediately threatened to derail the entire deal. During the 2004 election campaign, the Howard government announced that the Commonwealth contribution to the National Water Initiative would be funded by taking money previously allocated to the states for National Competition Policy payments. The states immediately announced their withdrawal from the Initiative, putting the whole process in doubt for the better part of a year.

A month or two ago, it appeared that the process was getting back on the rails, with the state governments gradually returning to negotiations, and a variety of projects being proposed. Then it emerged that the Commonwealth intended to attach a wide variety of strings to any project to which it contributed, notably including the requirement that its preferred approach to industrial relations be adopted.

On each of these occasions, the Commonwealth’s position was not entirely indefensible. It had never been promised that the competition policy payments would continue indefinitely. And the practice of tying grants to various more or less unpalatable conditions long predates this exercise.

Still, the net result has been that, if the states want to do anything about the problems of our rivers and water supply system, they have to accept draconian conditions in order to get back what is, in effect their own money. The ultimate risk in all this is that, sooner or later, the states will be pushed to the point where they give up, and drop the entire problem in the lap of the Commonwealth. Whatever the constitutional position, water problems now have such a high national profile that it would be hard for the Commonwealth to avoid taking responsibility, even though it lacks the resources and expertise to do much of the necessary work.

Such an extreme outcome is still some way off. But when we combine the confrontational centralism that has characterised the Howard government lately, particularly as the disappearance of the Senate obstacle approaches, with the specific instances in which the water initiative has been used as a political football, it seems unlikely that much will be left of the spirit of co-operative federalism before long.

In a situation where a triumphantly re-elected Coalition government at the federal level faces eight Labor governments at the state and territory level, some conflict is inevitable. But water is too important to be held hostage to conflicts over industrial relations or intergovernmental financial relations. A renewed outbreak of co-operation is urgently needed.

John Quiggin is an Australian Research Council
Federation Fellow in Economics and Political Science at the University of Queensland.